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Book One Session Six An Introduction to Business Functions Aims and objectives of session Six Provide an introduction to the business functions of human resource management, marketing, accounting and finance, operations and information management; Describe the main activities within each function; Demonstrate their impact and interdependence on each other; Human Resource Management (HRM) HRM function is concerned with all aspects of managing people within a business. HRM deals with all aspects of the employment contract, from the time it begins (recruitment and selection), through its ongoing maintenance and control (socialization, performance management, job design, rewards, motivation), to the time either party terminates the contract (redundancy, retirement, dismissal, resignation). Examples of HRM functions include: Staffing policy & planning, drawing up contracts, and deciding how many and what type of people and skills are needed to help the business start/ run/ grow. Job design – who does what and why Recruitment and selection Induction and socialization Performance management – job appraisal Motivation Health and safety Training and development Discipline Downsizing, redundancy, dismissal Marketing Marketing is the term given to the activities that occur at the interface between the business and its customers. It is concerned with matching what customers want to buy with what products or services the business is offering. The aim of marketing as a function is to ensure that customers will conduct exchanges with your business rather than with someone else’s. The development of the concept of marketing was preceded by other business approaches, or philosophies. These were: Production orientation: During the 19th century it was believed that efficiency in the production process is the main way to succeed. Product orientation: Rising affluence in the 20th century meant people were not as prepared to accept standardized products. Businesses started to develop better and more specified products. Sales Orientation: As manufacturing capacity rose in the 1920s and 1930s, the supply of products could outstrip demand and so the activity of actively selling became more important. This is the view that customers will not ordinarily buy enough of a product without an aggressive selling and advertising campaign. Consumer orientation: Modern marketers take the view that customers know what they want and recognize value for money. They will not buy from the business if they feel that are not getting what they want. Societal marketing: marketers should take responsibility for the needs of society at large and for the sustainability of their production activities. Customers are increasingly concerned about the ethical and environmental factors associated with business and their products. Marketing (Cont’d) Activities Within the Marketing Function (Four Ps of the Marketing Mix) Effective marketing is based on a good understanding of how customers behave and make decisions. There is a need to identify gaps in the market and anticipate opportunities. Employees in the marketing function deal with the ‘marketing mix’, first introduced by McCarthy (1987) and described by him as the four Ps of marketing: product, place, promotion, and price. Product: The product should be what the customer wants and expects to get. Place: The product should be available from wherever the target group of customers finds it easiest to shop, whether that is a high street shop, door-todoor delivery, a catalogue or online shopping. Promotion: All communications about the product should be put across in a way that will appeal to target customers. Price: The product should always be seen as representing good value for money. customers are usually prepared to pay a bit more for products of better value. Marketing (Cont’d) Activities Within the Marketing Function (Four Ps of the Marketing Mix) (Cont’d) The growing importance of the provision of services prompted an extension of the model. Booms & Bitner (1981) added another three Ps, to make the 7-P Framework. These are as follows: People: All services are dependent on the people who perform them, so people are , in a sense, an integral part of the product the business is offering. Process: Services are usually carried out with the customer present, so the process by which the service is delivered becomes part of the product. Physical evidence: Almost all services contain some physical evidence: the hairdressing salon produces a haircut, the fast food chain produces a burger. Note: The 7-Ps is a mix. One ingredient can’t be substituted for another, each must be added in the right form and quantity. As well as understanding their local or national market, marketers need to be aware of international and cultural differences in factors such as customers’ preferences and how goods and services are promoted. Accounting & Finance The Accounting & Finance (A & F) function is responsible for communicating appropriate financial information to internal and external stakeholders, many of whom will not be financial experts. The financial reports and accounts produced by the A&F function contain essential information about profit and loss, balance sheets and cash flow. The nature and purpose of the accounting and finance activities carried out within a business fall into two main categories: Management accounting; and Financial accounting Accounting & Finance (Cont’d) Management Accounting Information is produced for Internal Consumption. It is financial information for the managers of a business for such purposes as: Planning and budgeting. Management control and operational control. Performance evaluation. Making decisions about particular activities, tasks and functions. Making decisions about investment and disinvestment. Accounting & Finance (Cont’d) Financial Accounting provides information for people outside of the business: For example, external stakeholders such as shareholders, investors, suppliers, providers of loan capital, government, electors, competitors. The purpose of financial accounting include: External reporting; Providing information to allow resource providers to make choices about investing in the reporting organization; Disclosures about stewardship (how resources entrusted by a person(s) have been managed on their behalf by the person(s) making the disclosure); Disclosures that facilitate public accountability; Encouraging competition by making information available to competitors. Operations The operations part of a business can be best thought of as the activities that produce the goods and/or deliver the services required by its customers. This function is seen as a transformation process, changing inputs into outputs. The success of any business is related to its ability to manage its operations efficiently, to make the best use of resources, and to meet the requirements of its customers effectively. There is often a misconception that operations management is concerned only with manufacturing activities. In fact, operations management is applicable to services as well. For instance: Education is an operation, in which students are primary input, the transformation process is the learning that takes place, and the main output is the educated student. Operations (Cont’d) Input resources Transformation process Output products and services Information Management There are three important points to note about information management (IM): IM is a conscious process; it does not just happen, but should be based on planning. The purpose of IM is to assist in decision making; information is gathered to be used in the business and, therefore, is most useful when the starting point is the decision to be made, with information following that. IM is for the benefits of all levels of a business and should be about aiding decision making for all, not just those in senior management positions. Note: people often confuse information management (IM) with the management of information and communication technology (ICT). While ICT is one of the central tools of the information management function, it tells only part of the story. Information Management (Cont’d) Activities within the information management function Information management has the capacity to bring change in almost all business processes and is critical to much of the innovation that takes place. This is because information and communication technologies can manipulate, analyze and transport information in a host of new and creative ways (e.g. online banking and shopping). Cross Functional Issues All business functions in are interdependent. What happens in one business function will always have implications for all the others. No business function exists in isolation, and people who work in one functional role will have customers in other functions as well as in other businesses. (e.g. a maintenance engineer in a factory will have the production team as his customers) Benefits of small businesses SME sector plays a major role in creating employment, and new jobs impact on business activity through increasing spending power. SMEs can offer specialized services to customers that larger businesses may not regard as cost effective to provide. SMEs often work as subcontractors on big projects being managed by larger companies. SMEs are likely to have specialized knowledge of the local business environment and can tailor their products and services appropriately. SMEs contribute to the local infrastructure through assisting in regional and local growth. Smaller businesses maybe able to innovate in ways that larger ones would find difficult. They tend to be less bureaucratic and more flexible in their response to customer demands. Where do small businesses come From? Starting points for a small business Starting points for a small business include the following: The individual who comes up with an idea for a product or service for which he/she believes there is a market. The individual who is made redundant from his/her job and who decides to use this opportunity to try self-employment ‘push factor’. The individual whose personality makes it difficult for him/her to work for someone else. He/she does not like to be given orders and the bureaucratic hierarchy of big business can’t contain his/her needs for independence ‘pull factor’. Management buy-out, starting on a small scale, leading to the creation of a new small business. This might arise because the owners decide to sell a part of an existing business. Where do small businesses come From? (Cont’d) Motives for starting up an SME Motives for starting up a small business could be: An individual’s prior experience: strong interests or hobbies and/or work experience; Being a member of a minority ethnic group: a small business can be a way of entering mainstream society on one’s own terms and breaking through barriers to employment; Level of education: self employment maybe the way forward for those who left formal education at the earliest opportunity, or for very well educated people with particular skills or knowledge; Exposure to role models: in many cases the entrepreneur has come from a family where entrepreneurial activity is present. The risks involved There is no guarantee that your product or service will capture a share in the marketplace; Market share has to be won in a competitive business environment. You need to find the start-up capital, sometimes you may need to borrow (If things go wrong with the business, there will be a way of repaying the loan by the sale of assets). There might be a lack of knowledge about the opportunities and support for entering self-employment. A lack of role models within the society and/or within the family of those who have set up their own businesses. Entrepreneurship Entrepreneurship is the activity of entrepreneurs, people who create new products, processes, services, and markets. Entrepreneurs often develop new ways of working and doing business. Key motivational aspects for potential entrepreneurs include: more freedom, more money be my own boss, gain more respect lead and motivate others implement an idea or innovation dissatisfied with job need a job more of challenge family tradition being the forefront of technology been made redundant Entrepreneurship (Cont’d) McClelland suggested that an entrepreneurial individual has: a high need for achievement, a drive to excel. This is often reflected in strong commitment to a work ethic, where the individual is prepared to work the long hours often necessary in starting and running a business in its early days. the tendency to be a risk-taker. the ability to cope with and tolerate ambiguous situations, where decisions have to be made but information may not be complete. the need for personal autonomy: they want to be in charge of the business. a high internal locus of control. In other words, they have a high belief in themselves, believing that they are in control of their destiny. an ability to be open to and spot opportunities as they arise. Entrepreneurs are said to be opportunistic. In this sense, they may be outward-looking and creative in non-conventional ways. They may have an approach that would challenge acceptable norms of business behavior. Support for small business start-Up The government can support small businesses through ‘bringing about economic growth, improved productivity and a wider involvement in enterprise’ for all by: Building an enterprise culture. Encouraging a more dynamic start-up market Building the capability for small business growth Improving access to finance for small businesses Encouraging more enterprise in disadvantaged communities and under represented groups Improving small businesses’ experience of government services. Developing better regulation and policy.